UK: Tax Update - Monday 19 December 2011

Last Updated: 30 December 2011
Article by Richard Mannion

1. General news

1.1. Copies of legislation in Tribunal and Court hearings

The Judge in the case of Agar Ltd (TC01625) has issued a clear reminder to all participants in hearings that any legislation produced in evidence should be the version in date at the relevant time.

"14. As would be expected, HMRC brought copies of the relevant legislation with them to the hearing of the appeal (which was listed as a basic case, so proceeding straight to a hearing without any prior exchange of evidence or any statement of case from HMRC).

15. Unfortunately, however, it transpires that the legislation which they brought with them was not the up to date version. The provisions of schedule 56 were significantly amended by schedule 11 to the Finance (No 3) Act 2010 and the Finance (No 3) Act 2010, Schedule 11 (Appointed Day) Order 2011 (SI 2011/132) with effect from 25 January 2011 (which, it will be noticed, was part of the way through the tax year which is the subject matter of this appeal).

16. If the changes made by the Finance (No 3) Act 2010 had been relevant to the issues in this case, this could have been a crucial point. In fact, the changes made do not affect the issues in this appeal and it is therefore not necessary for us to decide the point. HMRC's oversight is however unfortunate, and raises the question of how a taxpayer is supposed to remain fully informed of all current legislation when even HMRC seem unable to do so.

17. Therefore whilst the change to the legislation does not affect matters in this case, we would wish to send a clear message to HMRC and appellants that when they produce copies of legislation for hearings, they should produce copies showing all amendments which have been made over any relevant period."

2. Private Clients

2.1. US tax reminder

Remember that US taxpayers will generally want to pay their UK tax by 31st December to get credit against their 2011 US tax liability.

2.2. French Wealth Tax

The French Embassy has the following on their website about the exemption for financial investments held by non-residents.

16 - I own a property and I hold a bank account and a few investments in France. Am I liable to wealth tax (ISF)? Non-residents are only liable to ISF on assets they own in France. Moreover, their financial investments are expressly excluded from the basis of taxation: in order to encourage non-residents to keep or increase their financial investments in France, article 885 L of Code Général des Impôts exempts those investments from ISF.

Married couples and persons who have contracted a PACS (Civil Partnership) should file a joint tax return.


Are considered as French assets:

1. Tangible movable assets physically based in France;

2. Properties directly or indirectly owned in France, or actual rights relating to such properties;

3. Shares in French or foreign companies or legal persons, which assets are mainly (more than 50%) made of properties located in France, or rights relating to such properties, proportionally to the value of these assets compared to the global value of those of the company;

4. Shares in unlisted foreign companies or legal persons which headquarters are located outside of France and which assets are mainly made of properties located in France, or rights relating to such properties, proportionally to the value of these assets compared to the global value of those of the company;

5. Equity securities in a French legal entity (representing at least 10% of its share capital)

6. Debts, when the debtor is established in France and securities issued by the French State or by any legal entity which headquarters are in France, regardless of the composition of its assets.

The threshold of taxation is € 1,300,000. As a result, the ISF is not due when the value of the taxable assets is less than € 1,300,000 on January 1st 2011.

3. Business Tax

3.1. The new proposals for capital allowances on fixtures

HMRC held an open meeting on 13 December to discuss the new proposals for capital allowances and fixtures. A brief summary of how the proposals work is as follows (with legislative references to CAA01):

For the transitional period between 1 or 6 April 2012 and 1 or 6 April 2014, those who sell/acquire fixtures will not be required to meet the pooling condition. This will mean that an acquirer in this period will only be able to preserve the value of allowances in respect of such expenditure if:

  • The vendor did not pool the expenditure (in which case the s562 apportionment process will apply for an acquirer able to claim allowances, subject to any previous owner having claimed when s185 and s62 will limit the capital allowance acquisition value for the purchaser), or
  • The vendor pooled the expenditure and either the fixed value or disposal value statement requirements are met. If the vendor has pooled the expenditure, in the majority of cases this will mean that the ability to claim allowances on this qualifying expenditure will be lost unless a s198 or s199 election is made. If it is not possible to agree values or get a s198/s199 election signed, then there will be recourse to the s563 Tribunal process.

Prior to 1/6 April 2012 the s563 procedure for referral to a Tribunal requires both parties to make the application. The new proposals amend this requirement, so that only one of the parties need apply. The mechanics of the Tribunal process are still being worked out and it is expected guidance will be issued shortly. The latest indications are that this will be heard before the First Tier Tribunal, and each party will bear their own costs. It is expected that the majority of such Tribunal cases should be relatively straightforward and could be dealt with under the simplified process by written submissions from both sides. More complicated cases will require a hearing, and even though land values may be required to determine the capital allowance position, it is not envisaged these sorts of hearings will need to be heard before a land tribunal.

From 1 or 6 April 2012 it will be possible to make a s198 election in respect of a s196(1) table item 9 disposal event (permanent discontinuance of a qualifying activity followed by a disposal of the qualifying interest), in addition to an item 1 disposal event.

From 1 or 6 April 2014 there will be a mandatory pooling requirement by the vendor in order to establish entitlement to claim capital allowances on fixtures acquired second-hand where a previous owner was able to claim capital allowances. This will mean that no allowances can be claimed on fixtures unless:

i) Neither the vendor nor a previous owner was able to claim capital allowances on the fixtures (so mandatory pooling condition cannot be met and the new CAA01 s187A does not apply), or

ii) The Pooling condition is met - the expenditure has been allocated to a pool by the vendor before the date of disposal, or a first year allowance has been claimed in respect of that expenditure, and either of the following two conditions is met;

  • Fixed Value: the vendor has been required to account for a fixed value for the disposal under items 1, 5 or 9 of the table in CAA01 s196, and that value has been reached either (a) by determination of a Tribunal as a result of an application under CAA01 s563, where the application to the Tribunal is made within two years of the date of disposal/acquisition, or (b) a s198 or s199 election is made within two years of the date of disposal/ acquisition, or;
  • Disposal Value Statement: the vendor has been required to bring a disposal value into account under item 2 or 3 of the table in s196 or item 7 of the table in s61, and has made a written statement of that value to the purchaser within two years of the date of the disposal to the purchaser.

4. IHT & Trusts

4.1. Erroneous late filing penalty notices from HMRC

HMRC has issued late filing penalty notices in respect of a number of Trust and Estate Returns on the basis that the paper 2010/11 tax return had not been filed by 31 October 2011.

On querying the position, as electronic submissions had been made well before the online deadline of 31 January 2012, we have been told that all Trust and Estate Returns filed electronically on 25 November 2011 were logged as paper returns. HMRC is aware of the issue and staff are working though lists of possibly affected cases and issuing cancellation notices.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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Richard Mannion
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